In the matter of Killard Excavation Pty Limited [2015] NSWSC 2028

Supreme Court New South Wales

Medium Neutral Citation: In the matter of Killard Excavation Pty Limited [2015] NSWSC 2028 Hearing dates: 27 March 2015 Date of orders: 27 March 2015 Decision date: 27 March 2015 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: Statutory demand varied and time for compliance extended. Catchwords: CORPORATIONS – creditor's statutory demand – application to set aside creditor's statutory demand – whether genuine dispute as to the existence or amount of debt claimed – whether fees payable by plaintiff for services rendered by defendant – construction of contract for services between plaintiff and defendant – where appropriate for court finally to resolve simple questions of construction – defects in service of statutory demand – where post office box specified as address for service. Legislation Cited: (Cth) Corporations Act 2001, s 459F, s 459G, s 459H, s 459J (NSW) Building and Construction Industry Security of Payment Act 1999 Cases Cited: Tayros Holdings Pty Limited v Dyar (unreported, Santow J, 10 October 1997) Category: Principal judgment Parties: Killard Excavation Pty Ltd (ABN 91 086 740 650) (plaintiff) Recoup Debt Recovery Pty Ltd (ABN 72 153 203 840) (defendant) Representation: Counsel: D Allen (plaintiff) P Rodionoff (defendant)

Solicitors: Dib Lawyers (plaintiff) Glenn Bower (commercial agent) (defendant) File Number(s): 2015/6753

Judgment (ex tempore) 1. HIS HONOUR: On 17 December 2014, the defendant Recoup Debt Recovery Pty Limited issued and caused to be served on the plaintiff company Killard Excavation Pty Limited a creditor's statutory demand claiming an amount of $28,594.72, described in the schedule to the demand as follows: Consultancy and debt recovery services provided to the debtor in respect of monies owed to the debtor by the debtor's client, Permanent Plumbing Pty Limited and Abigroup Pty Limited. 1. The demand was accompanied by an affidavit verifying the demand of Glenn Edward Bowyer which, like so many other documents in these proceedings, is defective – though not fatally so – for want of a date. The demand deposes, in accordance with the prescribed form, that the debt is due and payable and that the deponent believes that there is no genuine dispute as to its existence or amount. 2. By originating process filed on 8 January 2015, Killard applies pursuant to (Cth) Corporations Act 2001, s 459G, for an order setting aside the demand. Originally, it invoked both s 459H – contending that there was a genuine dispute as to the existence or amount of the debt – and s 459J – contending that there was a defect in the demand in respect of the address for service specified in it. 3. The defendant is in the business of providing debt recovery services. The sum demanded of $28,594.72 reflects three invoices issued by the defendant to the plaintiff in respect of debt recovery services. The first is an invoice dated 25 November 2014 for $1,595, the services being "prepare 25 November 2014 payment claim, $1,450, plus GST". The second is an invoice dated 26 November 2014 for $22,990, described as "success fee payable pursuant to agreement: settlement sum $380,000 plus GST equals $418,000 – 5 per cent, equals $20,900 plus GST". The third, dated 15 December 2014, was for $4,009.72, described as "success fee payable at 5 per cent of recovered amount, $72,904, equals $3,645.20, plus GST". 4. The second amount to which I have referred is an alleged success fee claimed in respect of the recovery of a debt said to be due to the plaintiff from Abigroup, described in the documentation as Lend Lease Engineering Pty Limited. The third is in respect of a payment said to be due from Planet Plumbing Pty Limited. So far as Planet Plumbing is concerned, it is, at least now, accepted that the amount awarded against Planet Plumbing was received by the plaintiff prior to the date of service of the creditor's statutory demand and that the claimed debt to the defendant in respect of it is on any view due and payable. That is a sum, once provision is included for GST, of $4,009.72 as claimed. 5. It is also accepted that of the sum that might be recoverable from Abigroup, $11,000 had been received by the relevant date, so that on any view the success fee in respect of that amount, being $550 plus GST – a total of $605 – was due and payable at the date of the demand. 6. As for the invoice for $1,595 in respect of preparing the 25 November 2014 payment claim, in reality the highest the plaintiff's evidence rises is that Mr Daly is uncertain whether or not that sum has been paid. No evidence has been tendered probative of its payment. Some material in an affidavit of Mr Ibrahim points against it having been paid. I am not satisfied that the plaintiff has discharged the burden of showing that there is a genuine dispute that that sum remains payable and outstanding. 7. Consequently, the essential remaining question in the case pertains to the balance of the Abigroup claim. The plaintiff retained the defendant to assist in the recovery of a debt said to be due from Abigroup which, in the contractual documentation, was said to be approximately $1.4 million exclusive of GST. The recovery was to be under the (NSW) Building and Construction Industry Security of Payment Act 1999. The fee agreement summarised the procedure to be followed, which included preparation and service of a payment claim, proceeding to adjudication if a payment schedule was provided, proceeding with a second notice and a default adjudication application if a payment schedule were not provided, and, after a determination was received, preparing and serving an adjudicated amount summary, following which it was said that the debtor had five days to pay the outstanding amount. 8. Under the heading "Costs For Making a Claim Under the Security For Payments Act", provision was made for various steps in the proceedings, including "prepare and serve payment claim $1,450" and "prepare, lodge and serve adjudication application, $7,000 to 10,000", but relevantly "success fee: 5 per cent of recovered amount (estimate) (not payable if settled prior to applying for adjudication), $70,000 plus GST". 9. Subscribed to the material about costs was the statement "I have read Terms of Engagement Debt Recovery Assistance annexed to this fee agreement and agree to be bound by the conditions contained therein. I agree to pay in accordance with the above fee schedule". The document was signed by Mr Bowyer on behalf of Recoup, and by Mr Daly on behalf of Killard. The document was accompanied by an authorisation to act as agent, whereby Killard authorised Recoup to act as its authorised agent, including in requesting or demanding payment of and collecting the debts in question. 10. The Terms of Engagement Debt Recovery Assistance, included in cl 3, the following: 3.1 Payment In consideration of RECOUP providing the Services to you, you must pay RECOUP the fee for the Services agreed between us from time to time. You acknowledge and agree that this includes a Success Fee. 3.2 Success Fee (1) For the purpose of this document, a Successful Outcome with respect to the recovery of the Debt is an outcome in which You settle Your for the Debt [sic] or Your Claim for the Debt is otherwise resolved by a judicial decision or an award pursuant to which You receive compensation or damages. (2) You will not be liable for the Success Fee unless You achieve a Successful Outcome. You acknowledge and agree that the Success Fee is payable notwithstanding: (a) that this document is terminated after You initially instruct a Solicitor with respect to Your Claim for the recovery of the Debt; and (b) you terminate Your instructions to that Solicitor and either do or do not engage a replacement solicitor. 3.3 General Consultancy You will be liable to pay an hourly rate of $200.00 + GST per hour for general consultancy work completed which is not a specific service included in the Fee Agreement. 3.4 Debtor pays you directly If a Debt is paid to you, in whole or in part, by a Debtor then: (1) you must notify RECOUP within one (1) business day of that Debt being paid to prevent RECOUP from incurring any further costs and fees on your behalf; and (2) you will remain responsible for any monies payable to RECOUP under this document with respect to the Services performed by it on your behalf. 3.5 Authority for Debtor to pay RECOUP directly (1) You grant an irrevocable authority to RECOUP to receive a Debt payment of the Debt, in whole or in part, directly from a Debtor and to hold that payment in the trust account of RECOUP on your behalf to be used in accordance with paragraph (2) below. (2) If payment of a Debt is paid directly to RECOUP in accordance with paragraph (1) above RECOUP will: (a) provide you with written notice within seven (7) days of receiving the payment; (b) deduct from that payment any monies payable to RECOUP under this document with respect to the Services performed by it on your behalf; and (c) release the remaining amount of monies to you. (3) If request by RECOUP You must sign an irrevocable authority directed to either or both of the Debtor, or Your Solicitor, directing them to pay the Debt to Recoup to be dealt with in accordance with paragraph (1). 1. In the definitions in paragraph 8, "success fee" was defined as "any amount agreed to be paid to Recoup in addition to the fee for the services and calculated as a percentage of the debt". 2. Recoup prepared and served a payment claim, and subsequently made an adjudication application against Abigroup. According to Mr Bowyer's evidence, which was not challenged, nor in this respect contradicted, he was informed by Mr Ibrahim of Killard that Killard and Abigroup were engaged in settlement negotiations. 3. After the adjudication application had been submitted, Recoup was instructed by Mr Daly to withdraw the adjudication application, and to lodge a third payment claim. On 20 November, Mr Daly informed Mr Bowyer that Killard and Abigroup were in settlement negotiations and on 26 November, he was informed by Mr Ibrahim that Killard had settled the claims made against Abigroup and Abigroup had "agreed to pay us $380,000 all up". 4. It is of some significance that Mr Bowyer then asked, "When are they going pay you?", to which the answer was, "They will send a deed for us to sign in a couple of days and organise payment as soon as we send the signed deed back to them". The timing of payment would be of interest to Recoup, it seems to me, only if the fact of payment was of some relevance. 5. I should say that Mr Bowyer also deposes to a conversation said to have taken place between him and Mr Daly when the agreement was made. This conversation is disputed. Mr Daly has indicated in an affidavit sworn in the District Court proceedings that if the matter were relevant or came to be tested, he would give a different version; but it seems to me that the agreement between these parties is fully spelt out in the written contractual documentation, and that the conversations that they had at the time cannot affect the proper construction of that documentation. 6. Prior to 8 January 2014, when the application to set aside the demand was made, the plaintiff had received $11,000 from Abigroup, but the balance of the $380,000 had not been paid. 7. The fundamental question is whether the defendant's entitlement to a success fee arose upon agreement between Abigroup and Killard as to the amount to be paid, or whether it arose only when the debt was actually paid; that is to say, the payment was received. 8. In the case of Planet Plumbing, the issue would have been slightly different, because there the question would have been whether the entitlement to the success fee arose upon obtaining an adjudication or judgment, or upon receipt of payment pursuant to the adjudication or judgment. Although it is not directly necessary to resolve that question, nonetheless it seems to me that it assists in the overall determination of the construction of the agreement, because one seeks to give a consistent, rather than inconsistent, effect to like provisions in such an agreement. 9. Insofar as the context of the agreement is concerned, it is I think not without significance that the context is the retention of, in effect, a debt collector to collect a debt. The fee agreement, the terms of which I have referred to above, described "5 per cent of recovered amount". It would not be possible to know what amount was recovered, it seems to me, until that amount is received. It does not speak of the amount of a judgment recovered or the amount of an adjudication, but of the recovered amount, and that tends in favour of a construction that the success fee was payable upon receipt of payment, rather than on obtaining judgment or adjudication. This is also supported somewhat by the use of different terminology earlier in the fee agreement where there is reference to "a determination in your favour" which plainly is a reference to a judgment or adjudication and is to be distinguished from "recovered amount". 10. Turning then to the terms of engagement with which the fee agreement must be read, cl 3.2(1), set out above, appears to omit the word "claim" after the words "you settle your", and I construe it as including the word claim. Leaving aside for a moment the question of settlement, the second part of the clause, referring to resolution by a judicial decision or an award, is qualified by the terms "pursuant to which you receive compensation or damages". I do not think the words compensation or damages are used in a strict sense, and plainly they are intended to incorporate the amount of the debt as opposed to damages or compensation in the strict sense. What is important is that receipt of money pursuant to this decision or award is an aspect of the entitlement in that setting: it is not sufficient that there be a judicial decision or an award, but there must be receipt of compensation or damages pursuant to it to trigger the entitlement to a success fee. 11. That then informs the construction of the words "you settle your claim for the debt". It would be unusual and inconsistent for the success fee to be paid in the event of a judicial decision or award only on receipt of compensation or damages, yet in the case of "settlement" regardless of receipt of payment. One telling consideration in this respect is that if it were otherwise, then having retained a debt collector to recover a debt, a success fee would become payable on negotiating a compromise and, if the debtor did not pay the compromised amount, the debt collector would have to be retained all over again to sue for and recover the compromised amount and thereby earn presumably a second success fee, which would be a most improbable intended outcome. 12. There are a couple of other, although I readily accept, minor pointers in the same direction. One is cl 3.4, which requires immediate notification of Recoup of the debt being paid direct to the debtor, specifying that in that event the client remains responsible for any moneys payable to Recoup; and cl 3.5, which grants irrevocable authority to Recoup to receive a debt payment of the debt in whole or in part directly from a debtor. 13. For those reasons, it seems to me that the preferable construction is that the success fee becomes payable only upon receipt of the recovered amount. Although this is an application to set aside a demand under s 459G, it is well-established that where simple questions of law or construction arise, the court can resolve them on the s 459G application. As there are other proceedings pending between the parties or related parties in the Local Court, and as the result of declining to decide the question but simply holding that there was a genuine dispute would be to subject the parties to further litigation, this is a case in which it is preferable that I resolve that question. Counsel for the defendant at least acceded to that course, for better or for worse, even if counsel for the plaintiff did not so enthusiastically embrace it. 14. It follows from what I have said that I conclude that, other than the sums to which I have already referred and which total $6,209.72 (although I will allow counsel an opportunity to check that), the amount demanded was not due and payable, and the demand should be varied by reducing the amount of the demand to $6,209.72 and declaring it to have had effect as so varied from the date on which it was served. 15. As to the question of the address for service, counsel for the plaintiff more or less abandoned the point, but I will say a few words about it for future guidance. First, as it seems to me, the requirement that a creditor's statutory demand specify an address for service is not complied with where a post office box is provided. A post office box may be an address, but it is not an address for service. An address for service is a place at which documents can physically be left for the recipient. Documents cannot be physically left at a post office box. 16. That is not inconsistent with cases, such as Tayros Holdings Pty Limited v Dyar (unreported, Santow J, 10 October 1997), which have held that service was effective when served at a document exchange address where that address had been specified. As the plaintiff's submissions pointed out, the effect of specifying a postal address for service is practically to reduce the 21 day period within which a company may apply to set aside a demand. 17. Accordingly, it seems to me that a demand which specifies only a post office box is defective. However, as frankly conceded, in this case the hurdle of showing substantive injustice in respect of a defect in the demand could not be surmounted, because the application to set aside the demand was admittedly made within time. Moreover, on the face of the demand, another address – which appears to be the registered office of the creditor – at which it could be served within the State was specified in paragraph 1. Thus this was not a case in which the information as to an address for service was so misleading as effectively to entrap the company into not making a valid s 459G application, such as has on occasion been held sufficient to render a demand a nullity. 18. For those reasons, I would not set aside the demand on the ground of a defect. 19. Accordingly, the Court orders that: 1. Pursuant to Corporations Act, s 459H(4), the creditor's statutory demand issued by the defendant to the plaintiff and dated 17 December 2014 be varied by reducing the amount of the demand to $6,209.72, and the Court declares that the demand has had effect as so varied as from when it was served on the company. 2. Pursuant to s 459F(2)(a), the time for compliance with the demand as so varied be extended to 10 April 2015. In order to resolve the construction issue, the Court declares that: 1. upon the true construction of the fee agreement for debt recovery assistance between the plaintiff and the defendant dated 8 September 2014 and in the events which have happened, the success fee is payable upon receipt by the plaintiff or the defendant from the debtor of the recovered amount or any part of it in respect of such amount or part as is recovered and not otherwise. 1. As to costs, although the plaintiffs have by no means achieved everything that was sought in the originating process, I think it has to be said that the plaintiff has achieved a substantial measure of success in achieving a very large reduction in the amount of the creditor's statutory demand in relative terms. It is undoubtedly true that some costs have been visited upon the defendant in respect of matters on which the plaintiff did not succeed, in particular the Planet Plumbing and $1,595 invoice amounts. On the other hand, there is no suggestion that the plaintiff could have obtained the result that it did obtain other than by making and prosecuting the application to the end. Moreover, the ultimate result has been to resolve the main issue between the parties in a final way, which means that the litigation has been of practical utility in reducing further dispute between them. 2. In those circumstances, I think the plaintiff should have about two-thirds of its costs in the proceeding, which I assess in the sum of $9,900 including GST. The Court therefore orders that: 1. the defendant pay the plaintiff's costs fixed in the sum of $9,900.